How to use your investments to do more for your children

15th November 2019

Every investment starts with a goal and for a parent there’s no greater goal than providing for a child. Your investments are one of the key ways you can ensure that the next generation’s future is a bright one.

Invest towards education

One of the first steps you can take to enrich your child’s future is to invest in a goal that will fund education fees.

Perhaps you’ll want your child to get a university education. If you start investing £200 a month into a Stocks & Shares ISA on the day your child is born, then by the time your child turns 18 you’ll have amassed £62,900 in a Stocks & Shares ISA (based on 5% annual growth after fees). This could make a huge difference to your child’s job prospects, and it would mean they could avoid the burdensome debts of student loans.

Maybe the goal is sooner, such as private school fees. You could still significantly grow your money towards supporting these education costs, £200 invested a month in a Stocks & Shares ISA with 5% annual growth after fees would be worth £13,400 by the time your child turns 5.

Open a Junior ISA

You can open specific ISA for children, the Junior ISA. This is a long-term, tax-free savings account for children, with funds accessible when the child reaches 18. It can be used to fund the cost of university, or simply to give your child a financial head start.

Anyone can contribute to a Junior ISA, including grandparents and extended family and friends. This type of ISA can be Cash or Stocks & Shares, but keep in mind that in a Cash ISA if inflation is higher than the interest rate you receive, your money will lose value. Stocks & Shares ISAs aren’t pegged by interest, growth is based on the performance of the investment.

Decisions around the Junior ISA are made by the child’s parents, but the money is held in the child’s name. Management of the Junior ISA passes to the child when they reach 16.

The current Junior ISA annual allowance is £4,368.

Plan to leave an inheritance

By leaving an inheritance, you can pass on your assets, ensuring future generations in your family are supported.

Estate and inheritance tax planning can be complicated, so it could be worth seeking professional advice to help you make the right decisions for your situation. You can see the latest tax rates and threshold on the government’s website.

Pay off your liabilities

It is natural to think about passing on your assets to your children, but have you also considered what will happen to your liabilities? This isn’t something you want to pass on to your next generation.

With that in mind, make sure you are paying off or have paid off any liabilities that could work against your children. Liabilities limit the effectiveness of an investment, and in some cases it is worth paying off your liabilities before even starting to invest.

Begin your child’s financial education early

True Potential’s Savings Gap research has highlighted a lack of financial understanding in UK society. Our data shows that people are on course to receive just £6,000 per a year from their retirement fund, when £23,000 is needed annually in retirement to live comfortable.

This savings gap comes from a lack of education. People have the means to invest towards a suitable goal, but the willingness and knowledge to do so just isn’t there in many people.

With this in mind, the biggest financial favour you could do for your child is to educate them on the fundamentals of finance from an early age. Their school isn’t going to take responsibility, so take it upon yourself to teach them the essential knowledge of personal finance.

For example, when your child gets their first job at 16, make sure they know that a little bit of their wage invested in a Pension could be worth a tremendous amount over the length of their career.

Pensions and Stocks & Shares ISAs are most effective when they have the benefit of time to manage volatility and build compound growth, so make sure your child is aware of the benefits of investing at least something as soon as they can afford it.

With investing, your capital is at risk. Investments can fluctuate in value and you may get back less than you invest. Past performance is not a guide to future performance. Tax rules can change at any time. This blog is not personal financial advice. The calculations take into account our average annual fee of 1.16%, they don’t take into account the impact of inflation, which will reduce returns, and assumes you only make the contributions as set out.

With investing, your capital is at risk. Investments can fluctuate in value and you may get back less than you invest. Past performance is not a guide to future performance. Tax rules can change at any time. This blog is not personal financial advice.

Investing

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